Business Context and Reporting Period
FS Investment Corporation (FSIC) filed this Form 8-K on March 11, 2014, to provide selected financial and portfolio information in connection with its application to list common stock on the New York Stock Exchange (NYSE) under the symbol "FSIC." The filing covers the two-month period ended February 28, 2014, and the fiscal year ended December 31, 2013. The data for the two-month period is unaudited, while the 2013 data is derived from audited financial statements.
Key Financial Metrics
Balance Sheet (as of February 28, 2014)
- Total Assets: $4,549,476,000
- Investments at Fair Value: $4,141,835,000 (Amortized cost: $4,040,654,000)
- Cash and Cash Equivalents: $240,655,000
- Total Liabilities: $1,875,507,000
- Debt Obligations:
- Credit facilities payable: $738,482,000
- Repurchase agreement payable: $950,000,000
- Total Stockholders' Equity: $2,673,969,000
- Net Asset Value (NAV) per Share: $10.27
- Shares Outstanding: 260,351,067
Results of Operations (Two Months Ended February 28, 2014)
- Total Investment Income: $77,574,000 (Interest: $69,077,000; Fees: $8,497,000)
- Total Operating Expenses: $41,065,000 (Includes $15,078,000 in management fees and $8,430,000 in interest expense)
- Net Investment Income: $36,509,000
- Total Net Realized and Unrealized Gain: $23,327,000
- Net Increase in Net Assets from Operations: $59,836,000
- Earnings Per Share (Basic and Diluted): $0.23
- Distributions Declared and Paid: $0.1440 per share ($37,423,000 total)
Portfolio Characteristics
- Portfolio Composition: 54% Direct Originations, 27% Opportunistic, 19% Broadly Syndicated/Other.
- Asset Class Mix: 51% Senior Secured Loans (First Lien), 22% Senior Secured Loans (Second Lien), 10% Senior Secured Bonds, 10% Subordinated Debt.
- Interest Rate Exposure: 72.1% Variable Rate, 23.6% Fixed Rate.
- Gross Portfolio Yield (Prior to Leverage): 10.1% (based on amortized cost).
- Non-Accrual Investments: 0% (None reported).
Material Changes vs. Prior Period
- Asset Growth: Total assets increased from $4,444,577,000 (Dec 31, 2013) to $4,549,476,000 (Feb 28, 2014).
- NAV Increase: NAV per share rose from $10.18 to $10.27.
- Portfolio Activity: Net portfolio activity for the two-month period was negative $24,605,000 (Purchases of $330,198,000 vs. Sales/Redemptions of $354,803,000), contrasting with a net positive activity of $130,846,000 for the full year 2013.
- Debt Levels: Credit facilities payable increased slightly from $723,682,000 to $738,482,000; Repurchase agreements remained constant at $950,000,000.
- Direct Originations: New direct origination commitments totaled $289,619,000 for the two-month period, with a gross yield of 9.2%, compared to 10.5% for the full year 2013.
Outlook, Risks, and Management Commentary
- NYSE Listing: FSIC anticipates commencing trading on the NYSE in April 2014, subject to approval and market conditions. No assurance is given that the listing will be completed within this timeframe.
- Liquidity: As of February 28, 2014, the company held $240,655,000 in cash and had $186,518,000 available under financing facilities.
- Forward-Looking Statements: The filing contains forward-looking statements regarding future performance and the NYSE listing. Risks include economic changes, regulatory changes, operational disruptions, and the uncertainty of the listing process.
- Investor Communication: A stockholder conference call was scheduled for March 12, 2014, to discuss results. An investor presentation was attached as Exhibit 99.1.
Key Facts for Investor Verification
- Verify the status of the NYSE listing application and the expected trading commencement date.
- Confirm the sustainability of the 10.1% gross portfolio yield given the shift in asset class purchases (higher percentage of Second Lien loans in recent activity).
- Review the maturity dates of debt facilities, specifically the Broad Street Credit Facility maturing December 20, 2014, and the JPM Repurchase Agreement maturing April 15, 2017.
- Assess the impact of the negative net portfolio activity in Q1 2014 on future investment income generation.
- Validate the calculation of Net Investment Income against the distribution rate of $0.1440 per share to ensure coverage.